Market participants’ spirits were tentatively lifted today (Thursday) after a deal to tackle the sovereign debt crisis in Europe was reached late last night, although details remain vague. BPCE SFH tested the market today with a Eu200m minimum tap.

“Now that we have this behind us and these statements, this is very positive,” said a syndicate official. “The market reaction is very positive, with equities up and spreads going in.

“What the longer term sentiment is will be finalised in the upcoming weeks.”

A resumption of new issuance was widely expected by syndicate officials, with some saying this would take place next week, particularly for non-core issuers who, they said, would need to wait for the release of details of the second ECB covered bond purchase programme (CBPP2) before moving forward.

“Starting next week, there could be more activity,” the syndicate official said. “There are a lot of issuers standing in line waiting to jump into the market.

“We have seen some narrowing in spreads and, while I don’t expect really big movements, they are at levels now where issuers can enter the market,” he added.

Another syndicate official said he expected core issuers to move forward this afternoon and tomorrow.

“But I think it is more the fringe guys who will wait next week for the details of CBPP2,” he said.

“Think about it: if you’re a peripheral and you’ve lost 40%-50% of what demand you need to get a benchmark done and the ECB will take 20%, then that makes it a lot easier for you.”

A covered bond banker said that while last night’s announcements were “obviously not everything” there was also “no real disappointment”.

New issue conditions are great, he said, adding that there has been some unwinding of positions as market participants do not want to be short ahead of start of CBPP2, and he also cited buying of French credits.

In addition, he said that technicals are supportive, with large redemptions, for example from French government bonds, meaning there are many cash positions.

BPCE’s deal has “fired a starting gun”, he said, adding that the prevailing issuance window could be short given public holidays next week, ECB meetings, and the potential for politicians “to mess up”, and that if issuers could move quickly to tap the market they should do so.

BPCE was aiming to add a minimum of Eu200m to a September 2021 benchmark today, but size had not been determined by the time The Covered Bond Report went to press. Barclays, BBVA, Credit Suisse and Natixis had built a book in excess of Eu750m by 1330 CET and fixed the spread in the middle of guidance of the 125bp area, with books due to close at 1430 CET.

“It’s a maturity that is appreciated by funds and insurers,” said a syndicate official away from the leads, “so I’m not surprised it’s going well.”

A syndicate banker on the deal said the tap was going very well, with the result “very pleasing.”

The guidance of 125bp over area was seen as fair to generous by syndicate officials away from the leads.

“I think at 125bp over, they are not really going to get that 4%,” said one, “but we’re still getting a very attractive pick-up against secondaries of 10bp-15bp.

Another syndicate official away from the leads said the guidance looked pretty generous.

Other bankers had been more sceptical before the release of a first update put orders at Eu700m mid-morning.

“I think they can get Eu200m, but it won’t be a blowout,” said another syndicate official away from the leads.